Definition
A provision allowing a borrower to terminate a mortgage by substituting government securities with the same cash flow as the remaining loan payments. It's essentially swapping your mortgage debt for Treasury bonds.
Example Usage
The commercial mortgage included a defeasance clause allowing the borrower to exit by purchasing Treasury securities.
Origin
From Old French 'defaire' meaning to undo or annul
Fun Fact
Defeasance became common in commercial mortgages during the 2000s, and the cost typically ranges from $50,000-$500,000+ depending on interest rates.
Source: Commercial real estate lending
Related Terms
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